Brent eases below $108 on Ukraine diplomacy

marinelink.comMarch 6, 2014

EU leaders set to warn, not sanction Russia; U.S. crude stocks rise more than expected. U.S. jobs data, services data point to lower oil demand.

By Shadi Bushra

Brent crude reversed gains made earlier on Thursday after Crimea's parliament voted unanimously to join Russia, even as the West and Russia engaged in high-stakes diplomacy to cool the crisis in Ukraine.

The announcement sets a referendum on the future of Crimea in 10 days, raising the stakes in the most serious East-West confrontation since the end of the Cold War.

The North Sea benchmark has fallen $4 since reaching two-month highs on Monday, when worries of an armed conflict between Ukraine and Russia peaked.

"The Crimea announcement is probably expected by markets as the majority of the population there is Russian," said Andrey Kryuchenkov, an analyst at VTB Capital.

"But the warmongering rhetoric is out of the way so for now we're waiting on the diplomatic negotiations, which are slow, but they're going on. The political risk premium has been reduced."

Brent was down 22 cents at $107.54 at 1248 GMT, after settling $1.54 lower. The contract hit $112.39 on Monday, its highest since Dec. 30.

U.S. crude was 80 cents lower at $100.65, after dropping $1.88 in the previous session.

Diplomats said the decision could not have been made without Russian President Vladimir Putin's approval, and that far from seeking a diplomatic way out, Putin appears to have chosen to create facts on the ground before the West can agree on more than token action against him.

European Union leaders meeting in Brussels were set to warn but not sanction Russia, whose forces have seized control of Ukraine's Crimea region. The foreign ministers of Russia and the United States are due to meet again on Thursday in Rome.

Oil was pressured further by a larger than expected rise in U.S. crude stocks and data showing U.S. private employers in the added fewer workers than forecast in February.

U.S. crude oil stockpiles rose more than expected last week as imports increased and refinery output fell, data from the Energy Information Administration (EIA) showed on Wednesday.

Crude oil inventories rose by 1.4 million barrels in the week ending Feb. 28, compared with analyst expectations for a build of 1.3 million barrels.

Crude stocks at the U.S. WTI benchmark delivery point in Cushing, Oklahoma, fell for a fifth straight week, following the start-up of the Keystone XL pipeline to the Gulf coast.

Further weighing on oil demand, U.S. oil refiners are expected to take 1,608,000 bpd of capacity offline in the week ending March 7, up from 1,412,000 bpd the previous week, data from research company IIR showed.

"With upcoming refinery maintenance on top of the Ukraine situation, there's not much support for oil prices at the moment," Kryuchenkov said.

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